Banks' fury over lending rules for mentally ill

Lenders face a legal minefield with planned new rules on loans to the mentally ill.

Lending shrinks: Banks will be expected to check on borrowers mental capacity.

There would be penalties if they made loans to those without the 'mental capacity' to borrow - and if they refused credit solely because of a person's mental problems.

'We'd be damned if we do and damned if we don't,' said Paul Ross, a director at the British Bankers' Association.

An industry source suggested that the logical outcome could be the same intense scrutiny as applied to mortgages for every credit card or loan application.

Even then, bankers point out that staff are not trained to spot mental illness.

But the Office of Fair Trading, which is consulting on the rules, said: 'We have no reason to think that banks and their staff should not be able to follow the guidance in practice.'

Jane Harris of charity Rethink Mental Illness said it was time banks took responsibility for lending only to people who were able to handle credit.

Consultation, which ends on Friday, seeks to consolidate the various rules governing lending to those with mental problems.

The OFT said: 'The draft guidance aims to strike a balance between protecting consumers with limited mental capacity from unsustainable and unsuitable borrowing while seeking to ensure they are not inappropriately denied access to credit.'

Harris said: 'We do not think there is a conflict here. A lot of it is really just common sense.'